September 15, 2009

Status Report on Financial Stabilization Efforts Released

The Treasury Department has issued a “status report“ summarizing the Obama administration's financial system stabilization efforts to date and describing planned steps toward ending the current support programs. According to the report, some of the programs already are winding down, with the Money Market Mutual Fund Guarantee Program scheduled to end on Sept. 18, 2009, and the Debt Guarantee Program component of the Temporary Liquidity Guarantee Program (TLGP) scheduled to end on Oct. 31, 2009. Market condition improvements mean that there is no plan to extend either of these programs, although an emergency facility may be put in place to allow banks to issue guaranteed debt for an additional six months.

The report said that reliance on other programs has declined as market conditions have improved. For example, in December 2008, more than $110 billion of guaranteed debt was issued under the TLGP Senior Debt Guarantee Program, while issuances fell to about $5 billion in August 2009. The total outstanding guaranteed debt has fallen by about $50 billion since early June, according to the report. Use of the Federal Reserve Board's liquidity programs also has dropped significantly.

There has been significant income from the support programs, the report added. More than $70 billion of the approximately $250 billion of capital that was put into the system has been repaid, and the government has realized approximately $10 billion in returns from those investments. Another $1.2 billion has been realized from the Money Market Mutual Fund Guarantee Program and about $9 billion has come in from the TLGP.

However, the report continued that there is a continued need for some government programs, pointing to the expectation that bank failures would continue at a high rate and to the continuing problems in both the residential and commercial real estate markets. “Some programs must continue until it is clear that the financial recovery achieved to date is fully self-sustaining,” according to the report.